Posts Tagged ‘The Economist’

Breakthrough ideas that change industries are increasingly coming from the developing world rather than the United States or Western Europe. Part of this is due to the fact that the West is outsourcing more research and development to emerging markets. Currently, Fortune500 firms have 98 research-and-development facilities in China and an additional 63 in India. IBM’s staff in emerging nations is larger than its U.S.-based workforce.

According to The Economist, “But it is also because emerging-market firms and consumers are both moving upmarket. Huawei, a Chinese telecoms giant, applied for more international patents than any other firm did in 2008. Chinese 20-somethings spend even more time on the internet than do their American peers. Even more striking is the emerging world’s growing ability to make established products for dramatically lower costs: no-frills $3,000 cars and $300 laptops may not seem as exciting as a new iPad but they promise to change far more people’s lives.”

Dubbed “frugal innovation”, this trend redesigns products and processes to eliminate unnecessary costs. For example, Indian telecom provider Bharti Airtel has dramatically cut the cost of providing mobile phone services by creating unique partnerships with its competitors and suppliers. The firm shares radio towers with competing firms and outsources network construction, operations and support to companies such as Ericsson and IBM.

The Great Recession has taken a toll on the famous American optimism and belief in social mobility as defined by the stories of such luminaries as Alexis de Tocqueville, Horatio Alger and Barack Obama. According to a poll by YouGov for The Economist, 39 percent responded that the opportunities available to them were not as positive as their parents’ experiences; just 36 percent reporting having greater opportunities than the previous generation. Approximately 50 percent think that the next generation will have a lower standard of living and fewer opportunities for social mobility.

This trend is not new. According to The Economist, “In 1963, John Kennedy declared that a rising tide lifts all boats. Indeed, in 1963 this was true. Between 1947 and 1973, the typical American family income roughly doubled in real terms. Between 1973 and 2007, it grew by only 22 percent – and this thanks to the rise in two-worker households. In 2004, men in their 30s earned 12 percent lease in real terms than their fathers did at a similar age, according to Pew’s Economic Mobility Project. This has been blamed on everything from immigration to trade to declining rates of unionization. But the driving factor, most economists agree, has been technological change and the consequent lowering of demand for middle-skilled workers.”

Americans tend to be remarkably accepting of comparatively high disparities in income because they still believe in upward mobility. The truth is that America does offer opportunity, though perhaps not as much as most people believe. A better yardstick of income potential is parental salaries, which suggests that social mobility is a less powerful indicator. Americans born to the middle class have a 50/50 chance of moving up or down in income, according to the Economic Mobility Project.